By: Patrick Hogan on April 30th, 2020
3 Tips on How Contractors Can Rise From the COVID-19 Crisis
At the start of 2020, the construction industry’s outlook had never been brighter. The early momentum of the United States economy boosted the confidence of construction industry leaders. According to the Associated Builders and Contractors’ Construction Confidence Index released mid-March, 72% of contractors expected to expand their staffing levels over the next six months, while more than 68% expected their sales levels to increase. Unfortunately, these expectations have largely plummeted because of the coronavirus outbreak.
The COVID-19 crisis has impacted construction projects all around the world in several ways, with many brought to a grinding halt. However, not all construction businesses have ceased operations for the time being. Several states in the U.S. have declared construction work as essential and, therefore, will continue operations albeit in a limited capacity. With supply chain disruptions and a skeletal workforce, contractors are facing project delays and stoppage.
The pandemic situation is continuously evolving as many construction business owners introduced several changes in their operations to adapt to the dire circumstances. The implementation of social distancing, additional health and hygiene facilities, and remote work is essential to slowing down the spread of the virus.
But as you deal with the impact of the coronavirus crisis on your operations, you should do so with the mindset that you’re preparing for the recovery of your business. Here are some tips on how contractors can rise from the onslaught of COVID-19.
Evaluate Operational Risks and Short-Term Liquidity
Throughout the COVID-19 pandemic, your company will experience significant delays and disruptions due to the slowing down of the supply chain as well as the general shortage of labor.
At this point, you will need to assess your financial and operational risks and their impact on your overall margins. Because of the disruptions, you may be unable to fulfill your own obligations, so you have to be proactive in renegotiating the terms of your contract if necessary. You should also consider alternative supply chain options, especially if your suppliers reside in areas that are severely impacted by the pandemic. If you source your materials overseas, especially in Asia, you may have to look for other options locally.
Many of the steps you need to take to counteract the impact of the crisis involves cash. For this reason, you need to assess your short-term liquidity and strictly monitor your cash flow. In particular, you need to focus on the management of your inventory as prolonged storage will incur proportional carry costs, as well as the collection of your pending receivables. If you've been diligent in filing your preliminary notices, you will have a better chance of collecting your invoices to support your COVID-19 crisis recovery.
Review Your Contract Creation Process
Contracts form the most powerful tool in a contractor’s arsenal, but only if they are done properly. The COVID-19 crisis has made the importance of every provision quite apparent. Force majeure provisions, which are generally regarded as boilerplate clauses, have been at the forefront of discussions as many construction businesses fail to fulfill obligations due to the pandemic. Depending on the language of a contract, these provisions can provide you with relief and more time to complete the job, or in some cases, void the contract altogether.
Moving forward, this is a perfect opportunity for you to review your contract creation process and aim to negotiate contracts that address similar situations like this pandemic. This may not directly help you recover from the COVID-19 crisis per se, but it will help you avoid any payment issues that can potentially slow down your recovery.
Prioritize Your Employees’ Safety
Construction business owners have always dealt with safety hazards on sites, but the pandemic is a completely different type of challenge. Understandably, there will be doubts among your employees about workplace safety that could affect their productivity. In times of uncertainty, people will look to their employers and community leaders for guidance. As an employer, you should be able to address their concerns in a transparent and reassuring way.
Transitioning to the new normal is a challenge not just for you but for your employees as well. Your job is to explore any opportunities that can ease this transition. For instance, you can expand your work arrangements for non-field employees to include flexible options such as remote work. For field employees, you need to put measures in place to fight against infections, such as having more hygiene facilities and ensuring social distancing protocols are followed. You may also need to revisit your employee leave policies and encourage workers with mild symptoms to take the day off.
There’s no denying that the COVID-19 crisis has brought the global economy down to its knees. No one knows when the pandemic will end and how businesses will recover from it. But if there’s anything that we have learned from the previous economic crises, the construction industry is resilient. It will recover slowly but surely.
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.